“Personal and Business Financial Management Tips for Success” – an opinion piece written by Mr David Nel (CA) SA, Chief Financial Officer and Chartered Accountant

In the modern world, financial management has become an essential skill, whether it is for personal finances or running a business. Effective financial management ensures stability, growth, and the ability to weather economic uncertainties. Here, we explore some practical tips for both personal and business financial management.

The cornerstone of personal financial management is budgeting. By tracking your income and expenses, you gain a clear picture of where your money goes. Tools like budgeting apps or simple spreadsheets can help you categorize and monitor spending. The goal is to ensure that your expenses do not exceed your income.

Draw up a spreadsheet or simply write on a piece of paper, in one column include your deductions, their dates and the Rand values of such. In the other column populate your after-tax salary. Then include your salary pay date. This simple exercise will help you identify how much cash you will need in your account for your debit orders until you are paid again, as well as assisting you to understand how much money you have available to spend on other things.

Life is unpredictable, and having an emergency fund can provide a financial safety net. Aim to save at least three to six months’ worth of living expenses. This fund can cover unexpected costs such as medical emergencies, car repairs, or sudden unemployment. Your savings should become part of your expenses in order for you to really save a rainy-day fund. If you aim to save after you have spent money on other non-essential things, it is likely that you will struggle to reach your target. Saving at least 10% of your after-tax salary is a good place to start, and always treat this money as an expense, only available for emergencies.

Not all debt is bad but mismanaging it can lead to financial distress. Prioritise paying off high-interest debts first, such as credit card balances. Consider debt consolidation if it helps reduce the interest rates and simplifies repayments. Always consider all your options before entering into debt counselling. With some discipline and planned debt management, you will likely be able to manage yourself out of your debt situation.

Saving is crucial, but investing helps your money grow. Explore investment options like stocks, bonds, mutual funds, or real estate. Ensure you diversify your portfolio to spread risk. Consulting a financial advisor can provide personalised investment strategies based on your goals and risk tolerance. A 30-day call account, or a unit trust account will earn good interest on your investment, and will remain low risk, meaning your money is safe.

It is never too early to start planning for retirement. Contribute regularly to retirement accounts such as pension or provident funds. Take advantage of employer matching contributions if available. The power of compounding interest means the earlier you start, the more your money can grow over time. Furthermore, there are generous Income Tax allowances of up to of 27.5% of your taxable income, to a maximum of R350,000, meaning you can significantly reduce your tax liability as you move towards retirement.

It is tempting to keep up with societal standards of living, but living within your means is crucial for financial health. Avoid lifestyle inflation and make conscious spending choices that align with your financial goals. Ensuring that you have a clear budget, which indicates your current expenses versus your current salary, will also help you to make informed decisions about what you can actually afford to pay for. Do not over-extend yourself on clothing accounts or car repayments. Cars generally lose value over time, and if you miss enough payments, you will likely lose the vehicle altogether. Also be aware that every time you open an account or buy something on credit, this information is loaded to the credit bureau of South Africa. Missed payments will negatively impact your credit score and could lead to you being unable to get credit in the future.

A solid business plan outlines your business goals, strategies, and financial projections. It serves as a roadmap for your business and helps in securing funding from investors or lenders. Regularly update your plan to reflect changing market conditions and business growth. This plan will be the blueprint of your business and should include: 1. The product or service you will offer, 2. The cost to offer this, 3. The profit margin and when the first profits will be expected into the business, 4. When shareholder investments are anticipated to be re-paid.

Cash flow is the lifeblood of any business. Ensure you have a system in place to track cash inflows and outflows. Positive cash flow ensures you can meet your obligations, reinvest in your business, and handle unexpected expenses. Consider using accounting software for accurate and real-time tracking. Cash flow is the management of physical cash required to pay bills, so understanding when your clients are going to pay you, and how much will be paid, will position you for successful cash flow and debtor management.

Keep a close eye on your business expenses. Regularly review and identify areas where you can cut costs without compromising on quality. This includes renegotiating supplier contracts, reducing waste, and improving operational efficiency. Also be critical of business processes that cost money, analyse if these processes are essential or elective within the broader business model, as well as what impact these expenses have on your profitability.

Accurate and up-to-date accounting records are essential for financial management. Implement robust accounting practices and consider hiring a professional accountant or bookkeeper. This ensures compliance with tax laws and provides valuable insights into your business’s financial health. Non-compliance to tax laws can result in heavy penalties, and in some cases imprisonment. Tax planning is an integral part of business financial management. Understand your tax obligations and take advantage of any available deductions and credits. Set aside funds throughout the year to avoid cash flow issues when taxes are due. SARS (The South African Revenue Service), expect business owners to be transparent about their profits, and pay the required taxes, in time, related to these profits.

Reinvesting profits back into the business can drive growth and innovation. Whether it’s upgrading equipment, expanding your product line, or investing in marketing, make strategic investments that align with your long-term business goals. In most businesses, stock (if the business offers a product), people (human resources) and marketing are amongst some of the highest expenses and tend to increase year-on-year. Finding innovative solutions and avenues for revenue generation will results in a business with a longer-term future.

Utilize financial management tools and software to streamline operations. From invoicing and payroll to inventory management and financial reporting, technology can improve accuracy and efficiency, freeing up time for strategic planning. Technology can also improve your overall business processes and provide you with additional mechanisms to increase revenue if implemented correctly.

Conduct regular financial reviews to assess your business’s performance. This involves analysing financial statements, assessing profitability, and reviewing key financial ratios. Regular reviews help in making informed decisions and adjusting strategies as needed. If you do not have the skillset to conduct comprehensive financial reviews, be sure to employ someone qualified (or a firm of accountants), to handle your business finances, and provide you with sound records and recommendations on areas for improvement.

Effective financial management, whether personal or business, is a continuous process of planning, monitoring, and adjusting. By adopting these practices, individuals can achieve financial stability and growth, while businesses can navigate challenges and seize opportunities. Financial literacy and discipline are key to ensuring long-term success and resilience in an ever-changing economic landscape